Howard blew his capital

Submitted text of the letter in today's AFR by Gavin R. Putland

“Big majorities never last,” writes John Howard (AFR Letters, January 16), “so political capital should be spent on a good cause.”

When Howard finally gained control of the Senate, he spent his capital on WorkChoices. This policy produced no discernible change in the unemployment rate, which continued to trend downward as it normally does during the inflation of a property bubble, until the bubble popped — just has Howard, very conveniently for his economic and fiscal record, was booted out of office.

Meanwhile Michael Workman (AFR Opinion, January 16) complains of “high structural costs, other than wages” without mentioning tax!

If the Tories are serious about job creation, they will stop attacking workers' wages and conditions, and start dismantling the taxes and tax-like imposts that cause the cost of hiring a worker to exceed the worker's take-home pay. The biggest offenders are withheld PAYG “personal” income tax and compulsory super contributions. Employers should be allowed to offset both against GST, reducing the marginal cost of labour without reducing workers' spending power (job-creating power).

By itself, this reform would cause GST revenue to be negative. So the obvious way to replace the revenue is to raise the rate and broaden the base of the GST, so that total GST receipts (and hence the cost of living) stay the same.

Another way is to reduce the GST rate to zero (eliminating the need to calculate the base, hence the compliance cost, and reducing the cost of living) and replace the revenue with something completely different. If the new impost is on unimproved land values, it will not undo the saving in labour costs and will not repel capital.